Scrutiny of value for money at the BBC - Public Accounts Committee Contents


2  Financial management and control

6. Making decisions which are informed by rigorous evaluation of the likely costs and benefits is central to strong financial management. Otherwise value for money is at risk and accountability for the results delivered is weakened. Without clear project goals there is room for scope creep. Across a range of BBC activities we have been concerned that there is a culture which allows commitments to be entered in to and extended without sufficient clarity, and robust challenge by BBC management, Governors and now the BBC Trust.

7. We recently examined three BBC estates projects—Broadcasting House in central London, Salford Quays in Greater Manchester and Pacific Quay in Glasgow—on which the BBC is spending in excess of £2 billion over 30 years. A series of project management failings on phase 1 of the Broadcasting House project cost the BBC over £100 million. For none of the projects did the BBC set out at the outset a clear assessment of the intended benefits from its investment in a way that would allow achievements to be assessed. In the case of Pacific Quay, the BBC only drew up a benefits realisation plan a year after the project was completed.[5]

8. Whilst the Governors initially approved the three projects, in 2007 the BBC Trust approved a revised business case for Broadcasting House which did not set out measurable benefits, and the business case for Salford which did not include a delivery timetable or project milestones.[6] In addition, scope changes added to the costs of Broadcasting House (£28 million) and Pacific Quay (£60 million).[7]

9. The estates projects bore similarities to what we saw in connection with the BBC's building project at White City. The approved cost of the project was £210 million, but basics such as the cost of fitting out buildings, the cost of furniture and the cost of relocating staff were excluded. The costs increased by £69 million (33%) as a result. The need for significant increases in scope and costs a relatively short time after approval raises questions about the quality of the BBC's planning, particularly for long-term projects.[8]

10. Assessing full costs and benefits of proposed spending, and evaluating options, is equally important to the programme-making end of the BBC's business. In 2008-09 the BBC spent £246 million securing the rights to, and a further £111 million covering, sporting and music events, including the Beijing Olympic and Paralympic Games, the Proms, and Glastonbury. The coverage was delivered within 5% of the total budget for each event.[9] The BBC did not, however, formally evaluate different coverage options and draw together all of the costs so that the full cost was clear at the approval stage. Nor were the intended benefits from the coverage of individual events identified at the approval stage, leaving the BBC poorly placed to evaluate the cost effectiveness of its coverage.[10]

11. Another example of the importance of getting things right from the outset was the way management prepared the case for the technology framework contract with Siemens in September 2004. When the BBC Governors considered the investment case the BBC told the Governors that the contract would deliver guaranteed annual savings of £35 million. However the savings were not guaranteed. The BBC's estimate of the annual savings fell to £27.5 million when the contract was signed one month later, and to actual annual savings of £21.8 million by April 2006.[11] Although the BBC has now issued guidance on the requirements for business cases, it has a long way to go to achieve a culture of compliance.

12. In addition to weaknesses in the business case for the contract with Siemens, there were implementation problems. Whilst reported performance against key service targets was high, most of the early technology projects commissioned under the contract experienced delays, with the result that there were cost overruns and some benefits from the projects were available later than planned. The BBC also lacked sufficient control over the services procured by divisions through the contract, as many areas of the BBC were still buying technology services and commodities from suppliers other than Siemens, undermining the delivery of savings from the contract.[12]

13. The BBC has not always protected its commercial position through its contracts. For the White City 2 building, the financing mechanism meant the BBC was unable to calculate the return to shareholders although the contracts included a provision to cap the return at 30%, which was much higher than typical rates of return for deals of this type.[13] For the Siemens deal, the contract did not provide for the BBC to share profits if Siemens return exceeded a specified level.[14]

14. The BBC has been securing savings through its efficiency programmes. The BBC's radio stations achieved efficiency savings of £11.7 million in the period from April 2005 to March 2008.[15] The BBC could go further to identify the scope for more efficiency savings, however, as there are wide ranges of costs for similar programmes. For example, the average cost for an hour of comparable music programmes on Radio 2, at almost £1,500, was almost 50% higher than on Radio 1. In addition, the costs of the BBC's breakfast and drive time shows did not compare favourably with those of its commercial rivals, largely due to the costs of presenters. We were not persuaded by the BBC's argument that that the market, and not its own actions and behaviours, was driving the pay of the BBC's top presenters.[16]

15. The BBC, by March 2008, also secured savings of £157 million from its strategic contracts[17], exceeding the target of £135 million when the contracts were first let. In part this was due to previously overlooked savings of almost £39 million from the Siemens contract.[18] The BBC has been successful in reducing the cost of other goods and services. The BBC achieved procurement savings of £37 million in the two years to March 2007, and established a centralised procurement function with qualified staff to strengthen its procurement procedures and to control its spending more effectively than in the past.[19]


5   C&AG's Report, The BBC's management of three major estate projects, February 2010, paras 1 and 9 Back

6   Qq 149 and 151 Back

7   C&AG's Report, The BBC's management of three major estates projects, February 2010, Figures 6 and 7 Back

8   Committee of Public Accounts, Twenty­fourth Report of Session 2005­06, The BBC's White City 2 development, HC 652, para 2 Back

9   C&AG's Report, The BBC's management of its coverage major sporting and music events, December 2009, para. 16 and Box 2 Back

10   Qq 11, 17, 34, and 35 Back

11   Committee of Public Accounts' Report of Session 2006­07, BBC outsourcing: the contract between the BBC and Siemens Business Service, HC 118, para 3  Back

12   Committee of Public Accounts' Thirty-fifth Report, paras 7 and 13  Back

13   Committee of Public Accounts, Twenty­fourth Report of Session 2005­06, The BBC's White City 2 development, HC 652, para 7  Back

14   Committee of Public Accounts, Thirty­fifth Report of Session 2006­07, BBC Outsourcing: the contract between the BBC and Siemens Business Service, HC 118, para 8 Back

15   C&AG's Report, The efficiency of radio production efficiency, February 2009, paras 56 and 57  Back

16   Committee of Public Accounts, Twenty­fifth Report of Session 2008­09, The efficiency of radio production at the BBC, HC 285, paras 9, 12, and 16 and Figures 2 and 3 Back

17   The BBC defines a strategic contract as those which have an annual value of at least £2 million, a term of at least five years, and which make a key contribution to its business Back

18   C&AG's Report, The BBC's management of strategic contracts with the private sector, March 2009, para 31 Back

19   Committee of Public Accounts, Nineteenth Report of Session 2007­08, BBC Procurement, HC 221, paras 2 and 8  Back


 
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Prepared 7 April 2010